Australia: Corporate collective investment vehicles tax regime

January 30, 2018

The Australian government released exposure draft legislation on the tax treatment of corporate collective investment vehicles (CCIVs) on Wednesday, December 20 2017. The draft legislation is open to public consultation until February 2 2018 and will apply to income years commencing on or after July 1 2018.

A CCIV is a company that is registered under the Australian Corporations Act and will provide a new type of CIV which is internationally recognised and readily marketed to foreign investors, including through the Asia Region Funds Passport. A complying CCIV (or attribution corporate collective investment vehicle (ACCIV)) will have access to an attribution or 'character flow through' model of taxation, generally aligned with the attribution managed investment trust (AMIT) tax regime. Principally, this will include flow-through tax treatment, deemed capital account treatment (under an election), and certain eligible non-resident investors will be taxed at concessional rates (generally 15%) on attributed income, subject to Australia's withholding tax provisions.

These concessions are directed at, principally, passive type investments by a sufficiently widely held corporation.

A new concept of an attribution investment vehicle (AIV) has been introduced which includes both ACCIVs and AMITs.

The CCIV tax regime was released together with the exposure draft legislation for the Asia region funds passport and will be subject to close consultation and likely finalised and passed through the Australian Parliament in the coming months.

Cross-border related party financing arrangements

The Australian Taxation Office (ATO) released its final Practical Compliance Guideline, PCG 2017/4, on its compliance approach to cross-border related party financing arrangements and related transactions on December 18 2017. Essentially, the ATO has introduced a risk categorisation or framework for related party financing arrangements and strongly encouraged multinationals to self-assess their tax risk position.

As a part of this encouragement, the ATO is offering to remit penalties and interest for voluntary disclosures for both historical and prospective financing arrangements, where certain pre-conditions are met.

The ATO has outlined various tax risk indicators which relate to, among other things, third-party debt of the borrowing group, security/collateral arrangements, subordinated debt, exotic features and the currency of the debt.

All Australian and foreign-based multinationals with material cross-border financing arrangements should promptly review their existing and proposed related party financing contracts in the context of PCG 2017/4.

Diverted profits tax (DPT) update

The ATO on December 18 2017 released Law Administration Practice Statement PSLA 2017/2 on the proposed administrative process for making DPT assessments. Further, it released draft Law Companion Guideline LCG 2017/D7 on practical guidance for taxpayers on key aspects of the DPT, including the principal purpose test, sufficient foreign tax test, and the sufficient economic substance test.